Buying new construction in New York

A finished building, the same plan

A completed condominium in New York City is still sold under its offering plan, with the same escrow and the same amendments described in our pre-construction guide. What changes is the timing. Contract to closing can take weeks rather than years, so the closing costs arrive quickly, and in New York they are large.

Taxes at closing

New York State charges a transfer tax (New York State Department of Taxation, opens in a new tab) of $2 for every $500 of the price, rising to $3.25 for every $500 on a home of $3 million or more in New York City. The city adds its own real property transfer tax (NYC Department of Finance, opens in a new tab) of 1.425 percent on a home above $500,000. Both are normally the seller’s to pay. In a sponsor sale, many offering plans pass them to the buyer, so read the plan’s closing cost section.

The buyer always pays the mansion tax: 1 percent of the price for a home of $1 million or more, anywhere in the state. In New York City, a home of $2 million or more also carries a supplemental tax of 0.25 to 2.9 percent, depending on price, so the combined rate runs from 1.25 percent to 3.9 percent at the top of the market.

Expect other costs too: title insurance, mortgage recording tax if you borrow and, in many new buildings, a contribution to the condominium’s working capital fund and the sponsor’s own attorney’s fees.

What the builder owes you

For a newly built house, or a unit in a building of five stories or fewer, New York’s housing merchant implied warranty applies under General Business Law section 777-a (opens in a new tab): one year for defects in workmanship, two years for the plumbing, electrical, heating, cooling and ventilation systems, and six years for material defects. A builder may replace it with a limited warranty that meets the law’s own terms, so check which one your contract gives you.

Taller buildings fall outside that statute. There, the offering plan and the purchase agreement set out what, if anything, the sponsor will repair after closing. Read that section as carefully as the price.

The Hamptons

On the East End, new construction usually means a house built by a builder or developer on its own lot, sold by contract rather than under a condominium offering plan. The inspection, the survey, the certificate of occupancy and the warranty above matter most.

Buyers in East Hampton, Southampton, Shelter Island, Riverhead and Southold also pay the Peconic Bay Region community preservation tax: 2 percent of the price above an exemption. In East Hampton, Southampton and Shelter Island that exemption is $400,000 for a home, and it falls away entirely at $2 million or more. Since April 2023, most of those towns add a further half percent for community housing. The mansion tax applies here as well.

Questions to ask before you sign

1. Which transfer taxes and sponsor costs does the contract pass to me?
2. What will the mansion tax, and any supplemental tax, come to at this price?
3. Is there a working capital contribution, and how much?
4. Which warranty applies: the statute’s, a limited one, or the offering plan’s terms?
5. Is there a certificate of occupancy, final or temporary, for my unit or house?
6. Does the property carry a tax abatement, and when does it end?

Why an advisor helps

Closing costs in a New York sponsor sale can add several percent to the price, and some of them can be negotiated. A buyer’s advisor knows what the sponsor has agreed to before and how this building compares with the ones around it. If you are weighing a new home in New York City or the Hamptons, we are glad to talk it through. 

General information only, not legal or tax advice. New York’s rules and tax rates change, and every contract is different. Review your documents with a New York real estate attorney before you sign.